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Greenville Business Magazine

Investors Face Many Choices when Building a Modern Portfolio

By John C. Stevenson

The world of investing is constantly changing, as is evidenced by recent Wall Street shakeups caused by Reddit-using day traders. But investment counselors say that successful investment planning requires a strategy based on each client’s unique situation, goals and preferences.

“One plan does not fit every client,” said Rosalyn Glenn, a Columbia-based financial planner with Prudential Advisors. “The answer lies in what the goals and objectives of the client are. A 60/40 [ratio of stocks to bonds] may work well for someone who has time to build and contribute to a portfolio to meet whatever [his or her] needs are; however, if they’re trying to send a kid to college and they need those funds within the next five years, then maybe the 60/40 doesn’t work.”

Likewise, she said that while a common goal might be to have security in retirement, the path to success will be different depending on several variables, including each client’s age.

“If I’ve got a young investor who is just starting out and is thinking about retirement and who is thinking down the road 10 or 15 years, then we may look at a portfolio that is 60/40 or 70/30, depending on what the client’s risk tolerance is,” she said.

Glenn said that while a 60/40 portfolio has been a recommended path for a wide swath of investors, that wisdom no longer holds as an absolute.

“Historically, there has been this model that everybody should [follow], because it’s worked. They’ve run the numbers,” she said. “But I think what we’re finding in this current market that we’re in is maybe that’s not the best way to do it.”

Diversify Your Portfolio

Jennifer W. Blackhurst, senior vice president, private wealth management, Synovus Bank, said that while she doesn’t believe the 60/40 portfolio is ready for the investment scrap heap, it’s important for investors to understand how stocks and bonds complement each other as they work to build solid portfolios.

“The key to building the right portfolio is diversification,” Blackhurst said. “It’s really focusing on the long-term goals and diversifying the asset classes. The thing about bonds is you don’t buy bonds to make money, you buy them to minimize your risks at the end of the day – to offset the equities you have in your portfolio. So bonds are still important to have within that 60/40 split.”

Blackhurst noted that aging millennials could fuel the push for diversification beyond bonds.

“You definitely have some new alternatives that people are looking at, and I would say millennials, who this year the first millennials will start to turn 40, so they have a lot more time on the horizon to build a retirement,” she explained. “So we may look to some different assets – people are looking at private equities, gold, minerals, things of that nature, that we can use to offset some of [the] risk.”

When it comes to the specifics of diversifying one’s stock portfolio, Glenn suggested an investor might do well to pay attention to companies he or she patronizes.

“I’m always looking for stocks for things that I participate in,” she said. “For instance, I enjoy going to Target, so because that is where I shop and I spend money, I might look at what Target stock is doing right now. Even with my young investors, I tell them the best way to look at stocks, if you are going to get into that, is to do it where you shop.”

Picking Industries Poised for Growth

When it comes to industries to watch, Glenn noted how rapidly technology is responding to current events, and said those companies that offer solutions to evolving problems will rise to the top.

“With technology and what the world is coming to, we’re finding the delivery companies – the Ubers and those kinds of companies – their stock is coming up because we’re utilizing their services more,” she said. “And we’re becoming more creative across this country in how we manage. We’re not doing things like we used to, so any of those delivery companies that do that, I think they’re going to do well over the next few years, because we’re changing the way we do business.”

Blackhurst, too, is bullish on tech companies.

“Technology, obviously, is key,” she said. “Technology is going to give us the ability for all of corporate America to move forward, despite the pandemic. Think about the companies that were out there hosting WebExes, for example – they’re killing it now. Back in the day, it was all about the boardroom meetings; now it’s from your den, in front of your laptop.

She said smart investors will seek out “industries that are looking forward toward normalcy in life, because that’s what we all want.”

Anderson University Puts Business Students in the Market

While financial advisors work with clients of all ages, one group of fledgling investors in the Upstate is learning about the market before they even join the workforce.

A group of Anderson University students is learning the ins and outs of investing with real money – a recently created $100,000 fund that is managed by business students at the university. The goal is to manage the fund so that it outperforms the S&P 500 market index.

“This specific fund will be all equities-based,” said Kent Saunders, a professor of finance and economics at Anderson University who advises the students who manage the fund. “In my past experience, I found that if we try to integrate in the fixed-income component, it becomes overwhelming for students to grapple with all of that in a one-year sequence of courses. But if they focus on equities alone, they are able to build a pretty in-depth understanding of the stock-valuation process.”

One unique aspect of the AU program, which kicked off in 2019, is that the students are focused on identifying “firms that are consistent with the school’s faith-based perspective,” Saunders noted.

The fund’s assets are managed by the students, who are enrolled in related business classes while they are active with the fund. Before recommending the purchase or sale of a stock, students go through a rigorous qualification process that includes analyzing a company’s financials and creating a sales forecast and earnings-per-share forecast, as well as a discounted cash-flow evaluation, according to Saunders. Students thus far have invested in one stock since the fund’s launch in 2020: Aflac.

“Based on the valuation they conducted of Aflac, they decided that was the stock they would recommend to purchase,” Saunders said. “They deemed it was undervalued relative to their valuation methods.”

Gordon Smith, who is also an Anderson University professor of economics and finance as well as being the director of the university’s Center for Finance and Economics, said he wants students to understand the value of prudent investing, in contrast to some of the recent Wall Street events, such as the machinations of investors to drive up GameStop stock prices.

“A lot of [the students] have Robinhood accounts and they see this as an easy way of being able to get into the investment game, and I mean that literally because I think to some degree they see it as a game,” Smith said. “They don’t understand it from a long-term perspective, and these are the kind of things that happen. We want to help avoid those situations as we help students think about things beyond tomorrow or the next year.”